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Platforms due diligence: The big question that needs asking

24 July 2017

While the level of information that is being asked for by adviser firms in their due diligence processes over the past two to three years has been improving all the time, says Alastair Wilson, head of Retail Platform Strategy at Zurich, “the one question that we still find is missing and which I think is core, is ‘how can you help me improve my clients’ outcomes?’.

“Due diligence on platforms can be about the detail, the boxes that must be ticked, but it’s also about the planning strategy for clients, and about taking a step back and looking at the bigger picture in respect of the proposition of the adviser firm.

“If it was me asking the questions, as well as the necessary ones around funds, technology and capital adequacy, I would be asking platforms how they can support my client proposition. Where are the gaps in it and how would they help me fill them,” he adds. “We don’t get enough of that type of holistic approach to questioning half as much as we should, in my opinion.”

The platform market has developed over the years and not all the propositions are the same, he stresses, “some will be good at the retirement stage while some will be good in the accumulation stage”, but advisers and paraplanners have to search for what those differences are.
“One question we get asked more now is whether as a platform we pre-fund. This may seem a simple question and anyone who pre-funds will answer that they do, but there are a number of ways in which pre-funding works. The questions to ask then is what, why and how that pre-funding works.”

MiFID II, he points out, will require that advisers, fund managers and platforms know their target markets. “By default, that will require each to know what is not their target market.
“Bearing in mind the target market of your business, would you rather work with a platform that has thought through how it can help support your business and the clients you want to serve or a generalist platform that ticks all the right boxes but isn’t focused on your type of client?”

Platforms generally are not good at making that differentiation clear in due diligence work, he adds. “It’s having the courage to stand up and say ‘we’re really good at this’ – because then people may think that by default you are not good at other things.

“Platforms can’t be one size fits all and if you are clear on your target market then you need to shout it from the rooftops. We only take advised clients and most are goal driven but those goals will change as people go through life and where we see we offer something more is to the at-retirement market.”

Practical issues

As an example of that focus, he cites the example of clients who are dependent on their income from the platform. “If the platform you are using has all the bells and whistles but if something goes wrong – because of a market change or whilst the platform is sorting its technology out – and your clients don’t get paid, who are they going to call? It’s about us as a platform putting ourselves in the clients’ shoes and their expectations of the adviser firm.

“Advisers might have 100 clients today who need income. In 5 years’ time that could be 500. It’s even more important that the platform can ensure all those clients get paid the income they need, when they need it.”

One of the biggest challenges for income planning is where clients don’t know how much income they will need, Wilson adds. “So we have example scenarios which show, for example, how much a typical person spends when they are 65 or 70 or 80. It’s a starting point for discussion.

“And with drawdown, no-one knows what lies ahead and in some cases a client may already be showing signs of ill-health. We’ve recognised that advisers would probably like the option to build in protection benefits for five years so if the client were to die in that period the capital value would have some protection.

Ultimately, it’s about how an adviser firm would use the platform proposition to build on and improve its own proposition to its own clients, he reiterates.

“I think the challenge is that people often see platforms as trading instruments but they are far more than that and that is what paraplanners have to dig down into, so they know the platform’s proposition aligns with the adviser firm’s propositions and the clients’ needs and wants.”

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